Finance Committee on Nov. 3rd, 2014

[The Chair, Conservative, James Rajotte]

The second item you mention in your “Economic and Fiscal Outlook”, on page 1. You said it would be good practice if policy-makers commit in advance to the allocation of potential surpluses between debt reduction, tax reductions, or spending increases. I agree heartily, and so I want you to advise this committee as to what per cent you would allocate to each one of those.

[Mostafa Askari]

Oh, sir, that's a dangerous—

[The Chair, Conservative, James Rajotte]

I know people don't like answering it, but what's your advice?

[Mostafa Askari]

This is your business, not ours.

That's a policy choice, really. I'm serious. It's a policy choice. Those kinds of decisions really have to be based on many different things that we do not take into account in our business. There are issues of equity, efficiency, and what the objectives are.

[The Chair, Conservative, James Rajotte]

You don't have to answer it, but if you want to.... Does anyone want to answer it? No?

Mr. Cameron, do want to answer that?

[Scott Cameron]

Well, you can give it all to me if you want.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, James Rajotte]

Here's the next question. You mentioned that growth in the U.S. is positive and is certainly picking up, and the Canadian growth rate. What do you think will be the impact on the U.S. growth rate of its moving away from quantitative easing?

[Mostafa Askari]

We have essentially taken that into account in our projections of interest rates. The reason that interest rates show a rising profile is that the U.S. will stop the quantitative easing and rates will gradually increase in the U.S., and the same thing in Canada.

Now the question, of course, is the response of the economies to that kind of environment. We have made an assumption, whether that really would be the case or not. That's a risk to the forecast. The negative response will be harsher, larger, obviously—

[The Chair, Conservative, James Rajotte]

Will there be an impact?

[Mostafa Askari]

There will be an impact, definitely, yes.

[The Chair, Conservative, James Rajotte]

What will it be?

[Mostafa Askari]

Driving the interest rates will have a negative impact on economic activity.

[The Chair, Conservative, James Rajotte]

Can you quantify that?

[Mostafa Askari]

Well, if it goes beyond, we have measures of how a 1% increase in interest rates would affect the economic activity. The data is actually provided in the budget documents, normally, by the Department of Finance. I don't recall the exact number right now, but there is going to be a negative impact.

[The Chair, Conservative, James Rajotte]

Next you talked about the impact of the price of oil. That was also raised by Mr. Chan, I think. On page 3 you show the difference between Brent, West Texas Intermediate, and Western Canadian Select. Have you done analyses on the differences between those? Obviously there are, somewhat, differences of product. Obviously part of the reason for that difference, especially over the past number of years, has been due to market access. Have you done any studies in terms of what per cent of that difference is due to access to market for those products?

[Mostafa Askari]

No, we have not done that study.

Actually, it's interesting, the decline in oil prices. The Brent and WTI have been more in decline than the Western Canadian Select price, which is actually beneficial for Canada because most of the Alberta oil is sold at Western Canadian Select price. We haven't really done any study as to what portion of that differential is due to the access.

There will always be a differential because there are different qualities of oil, kinds of oil. What portion of that is due to access or a lack of pipeline, I cannot answer.

[The Chair, Conservative, James Rajotte]

In terms of impact on federal government revenues, obviously it has a greater proportionate impact on provincial revenues, particularly in my province of Alberta.

[Mostafa Askari]

Yes.

[The Chair, Conservative, James Rajotte]

Can you give us a ballpark, if the price of oil drops by $10 a barrel, in terms of the impact on federal revenues going forward?

[Mostafa Askari]

No, we have not done that because that goes through corporate taxes. We can probably look at that and get back to you.

[The Chair, Conservative, James Rajotte]

Okay.

Here is the next question I have. The U.S. economy has picked up, and the U.K. economy has picked up. There's a fairly active debate that the U.K. government embarked on an austerity program that was far beyond what any other government in the G-7 did, I think. There's debate as to what impact those measures, in terms of trying to move to a balanced budget, had on its growth. Do you want to comment on that situation?

[Mostafa Askari]

Well—

[The Chair, Conservative, James Rajotte]

Ms. Lao, do you want to comment?

[Helen Lao]

We haven't looked at the U.K. specifically, given that the U.S. is our biggest trading partner as of the moment. That's why we assume, in our economic forecast, that the Canadian outlook would be heavily influenced, more influenced by the U.S. than the U.K.